China Business, Legal News

Overtime Pay in China

China Overtime Rules

The following is an email on which I was cc’ed from one of my law firm’s China employment lawyers to a client regarding paying overtime to employees in China. I am running it here because we are so often asked about China’s overtime requirements and because they are so different from those in many of the countries from where our clients come. Speaking overly generally, overtime is not required to be paid to high level salaried management in many countries and that generally is not the case in China, unless you have prior approval from the local Labor Bureau not to pay that. The ease of obtaining this approval varies wildly across China.

Here’s China general system:

1. China does not recognize the concept of a salaried employee (without overtime) as is common in many countries for management personnel.

2. The only legal method of payment in China is by an hourly wage. If an employee works beyond the 40 hour week, then the employee must be paid overtime. If the employee works beyond the eight hours in a day, the employee must be paid overtime. That is the way the law works and there are no exceptions.

3. This inflexible approach is set up for the conditions of line workers in a large factory. It does not fit with the way businesses like yours actually operate.

4. The employee manual we provided you accords with the strict requirements of China’s overtime laws.

5. Foreign companies deal with the overtime issue in various ways, depending on the actual conditions of the company. The most common is to have an informal policy for adjustment. That is, if an employee works too much in any day or week, the employee takes time off in subsequent days or weeks to compensate. This approach does not strictly comply with the law, but I am not aware of any company getting objections if the approach is actually followed. However, it is not something that should be memorialized in the employee manual and there are no guarantees you will not be facing an overtime action at some point down the road for this.

6. For management personnel, the situation is more complex. It makes no sense to expect management personnel will be paid on an hourly basis in the same way as production workers. Most Chinese companies therefore expect their management personnel to work on the same basis as U.S. style salaried workers. Even though this is common, it still exposes the company to overtime claims if there is a later dispute.

Again, this is not something that should be included in the employee manual; it should instead be worked out with each manager on a case by case basis.

7. The really difficult issue is with sales staff who travel extensively and maintain irregular work hours. It is best to have a policy where their work hours are adjusted depending on how much time they spend working in any given week. This is often difficult to do. A number of Chinese companies make no attempt to pay overtime or make any adjustment for this type of worker and these companies are exposing themselves to claims for back overtime in the event of a dispute. But these are mostly Chinese companies that do this and so their risks will be a lot lower than yours. If your company does this the risk will be quite real. I have seen a number of cases where this type of worker makes an overtime claim in situations where there is a dispute. Since the employment situation is getting more difficult in China — especially for foreign company employers — disputes are becoming more common. You therefore need to take particular care on these issues.

How do you handle overtime in China?

6 responses to “Overtime Pay in China”

  1. What we do, and what anyone can do is to the Labor Bureau for “Comprehensive Working Hour” status for certain employees. “For enterprises not able to use standard working time policy due to special nature of the job, seasoning/natural conditions, or which require continuous work. The Comprehensive working hours system allows the actual working hours longer than 8 hours or 40 hours on a particular date or in a particular week; but the total working hours within the comprehensive calculation cycle should not exceed the statutory accumulative working hours.”
    Problem pretty much solved.

  2. In a country where ‘external relationships developer’ (setting up and attending banquets) can be a full time staff position, the majority of managers (and even production line workers) in China recognize the reality that your work hours may vary week to week; they are familiar with the concept of being a salaried employee and happy to have the flexibility in their schedule. We allow our managers some flexibility to determine their own 40 hours with little formal records. It’s not 100% liability free, but as long as we are not loading our managers with tasks that require them to be putting in consistent 70 hour weeks, I think the liability is low.

  3. I have several friends who work for _______ in Chongqing. Some work in sales, some work in installation and repair. They routinely work 12 hours a day and at least one day on the weekend. They never receive any overtime pay, nor do they receive compensation in the way of time off work. They do not complain for fear of losing their jobs. What can be done about such abuses?

  4. My wife and I came to China from Canada in 1998 to work with people who have some sort of disability. One of the works that have emerged over the last 14 yearsnhave been a number of bakery restaurants, Chinese-owned and operated. My wife and I act as volunteer consultants to these Chinese-owned restaurants when we come to China. The owners are old-school thinkers having come from a rural upbringing and lacking in advanced education. (sufficient in the past for a family owned and operated micro-business) but not for a growing small business in a major city. Old-school thinking by the owners, managers and staff does not easily make room for overtime pay, social benefits adherence , injury insurance and so on.
    The greatest problem to these emerging labor policies in china is that they are not uniformly enforced and as the writer well put, inflexible. One local government office we talked to has 3 workers to oversee more than 10,000 businesses. They spend most of their working hours in the office and not out in the field. Larger companies are targeted while smaller ones continue to pay low wages, demand long hours and give few benefits..overtime pay is out of the question. This makes for an extremely uneven playing field for businesses who are playing by the rules. It is tempting many, I would expect, to find creative ways to work underground or to devise methods of avoiding costly labor standards rules and extremely high social benefit payments.
    For my friends in the restaurant business, where profit margins are extremely small, China’s inflexible, one-rule-fits-all labor laws are threatening their ability to make profit and their very existence.

  5. The overtime situation in China is a problem that the overall political system (communist-capitalist hybrid system) in China and how capitalism for most of the world operates. In many communist societies worker’s rights and wages are of the highest priority and in capitalism profits are deemed the highest. So the Chinese political, legal and economic classes have to make a decision on how they will decide these matters. If not down the line when class actions start to occur their court system will be overwhelmed with claims dubious or not about what is fair and what is not fair for workers whether they are salaried or wage based.

  6. It should also be noted that overtime is voluntary under Chinese labor laws & regulations. Economic realities make it so that employees will rarely refuse OT. You’re more likely to see them leave to other employers, if there’s not enough opportunity to make some extra money at your company.
    In addition to “comprehensive” there is “non-fixed” hours. This means no limit on hours worked and no payment on OT. It can be applied to managers as well as other professions, like taxi and truck drivers (this may explain the road-safety situation to some extent). I would advise some sort of performance-based bonus system to ensure that staff on “non-fixed” actually put in the time&effort you expect.

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